Essay on Chapter 2 Solutions for Int. Accounting...

CHAPTER 2 SOLUTIONS TO B EXERCISES EXERCISE 2-1B (15–20 minutes) (a) True. (b) False – General-purpose financial reports helps users who lack the ability to demand all the financial information they need from an entity and therefore must rely, at least partly, on the information in financial reports. (c) False – Standard-setting that is based on personal conceptual frameworks will lead to different conclusions about identical or similar issues. As a result, standards will not be consistent with one another, and past decisions may not be indicative of future ones. (d) False – Information that is decision-useful to capital providers may also be useful to other users of financial reporting, who are not capital providers. (e)†¦show more content†¦(c) Comparability requires that disclosure of changes in accounting principles be made in the financial statements. To do otherwise would result in financial statements that are misleading. Financial statements are more useful if they can be compared with similar reports for prior years. (d) The proper accounting for this situation is to report the equipment as an asset and the notes payable as a liability on the balance sheet. Offsetting is permitted in only limited situations where certain assets are contractually committed to pay off liabilities. (e) It is well established in accounting that revenues and cost of goods sold must be disclosed in the reporting of an income statement. It might be noted to students that such was not always the case. At one time, only net income was reported but over time we have evolved to the present reporting format. E2-9B (15–20 minutes) (a) Probably the company is too conservative in its accounting for this transaction. The expense recognition principle indicates that expenses should be allocated to the appropriate periods involved. In this case, there appears to be a high uncertainty that the company will have to pay. FASB ASC 450-20-25 requires that a loss should be accrued only (1) when it is probable that the company would lose the suit